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Statement of Senator Patrick Leahy,
Chairman, Senate Judiciary Committee
Accounting Reform Conference
July
24, 2002
I thank Chairman Sarbanes and Chairman Oxley, as
well as House Judiciary members, Chairman Sensenbrenner, Ranking
Member Conyers and Representative Lamar Smith for their leadership on
this impressive conference agreement. I am proud that the conference
agreement adopts the provisions in the Leahy-McCain amendment, which
the Senate adopted by a 97-0 vote.
These provisions are nearly identical to the
Corporate and Criminal Fraud Accountability Act, which I introduced
with Majority Leader Daschle and others in February and which was
reported unanimously by the Senate Judiciary Committee in April.
Among other important provisions from that bill,
today’s report includes a tough new crime of securities fraud, which
will cover any scheme or artifice to defraud investors.
Working with Chairman Sensenbrenner, we were able to retain the
provision as I wrote it with a higher 25 year maximum jail term. That
will cause scam artists to think twice.
There are three key provisions of the
Senate-passed bill that were not in the recently passed House bill but
are now in the conference agreement.
I believe that these three essential provisions
represent a truly comprehensive reform measure.
First, we extend the statute of limitations in
securities fraud cases as adopted in the Senate-passed bill. In many
state pension fund cases, the current short statute has barred fraud
victims from seeking recovery for Enron’s misdeeds in 1997 and 1998.
For example, Washington State’s police officers, firefighters, and
teachers were blocked from recovering $50 million in Enron investments
by the short statute of limitations. That is why the last two SEC
Chairmen, a Republican and a Democrat, endorsed a longer statute of
limitations to provide victims with a fair chance to recoup their
losses.
Second, we include meaningful protections for
corporate whistleblowers as passed by the Senate. As we learned from
Sherron Watkins of Enron, corporate insiders are the key witnesses.
They should be encouraged to report fraud and help prove it in court.
As a former prosecutor I know if you don’t have a witness you don’t
have a case. The whistleblower protections in the Senate-passed bill
are the result of a bipartisan compromise Senator Grassley and I
crafted. It was adopted unanimously by both the Judiciary Committee
and the full Senate.
Third, we include new anti-shredding crimes and
the requirement that corporate audit documents be preserved for 5
years. Prosecutors cannot prove their cases without evidence. As the
Andersen case showed, instead of just incorporating the loopholes from
existing crimes and raising the penalties, we need tough new
provisions that will make sure key documents do not get shredded in
the first place.
It only takes a minute to warm up the shredder,
but it can take years for prosecutors and victims to prove a case.
The conference report also maintains almost
identical provisions to those authored by Senator Biden and approved
unanimously by the Senate. These include enhanced criminal penalties
for pension fraud, mail fraud, wire fraud, and a new crime for
certifying false financial reports. As Chairman of the Judiciary
Subcommittee on Crime and Drugs, Senator Biden deserves praise for his
leadership on these issues.
It is time for action – decisive and
comprehensive reforms that will restore confidence and accountability
in our public markets for the millions of Americans whose economic
security is threatened by corporate greed.
We cannot stop greed, but we can keep greed from
succeeding.
We have seized this moment to make a good
beginning to fashion protections for corporate fraud victims, preserve
evidence of corporate crimes and hold corporate wrongdoers
accountable. We have much to do to help repair the breaches of trust
that have shattered confidence in our markets and market information.
We have made a good start today toward restoring that confidence but
more will be needed. In addition we will need swift and strong
enforcement actions and good faith administration of the reform set
forth in our conference report. Our conference is concluding, but our
work is just beginning.
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Tentative Agreement
On Securities Fraud/Criminal Penalties
In Accounting Reform/Corporate Responsibility Bill
Judiciary Chairman Patrick Leahy Wednesday afternoon said a tentative
agreement has been reached by Senate and House negotiators on the
basic elements of the securities fraud/criminal penalties section of
the Accounting Reform/Corporate Responsibility bill. Conferees on the
bill will meet this afternoon at 5 p.m. to take up the
agreement-in-principle as well as unresolved items from the overall
bill. Leahy, on behalf of Senate conferees, on Tuesday had made a
proposal to House conferees on the corporate and criminal fraud
section of the bill, which has been accepted almost entirely by House
conferees. Following (below) is a summary of the tentative agreement
on the securities fraud section. Contact: David Carle, 202-224-3693
TENTATIVE AGREEMENT ON CRIMINAL PROVISIONS
(Below are key elements of the Senate Conferees’
offer from Tuesday. The Senate proposal has almost entirely been
accepted as the tentative agreement.) --
COMPREHENSIVE REFORMS TO ENFORCE CORPORATE
ACCOUNTABILITY --
PRESERVE EVIDENCE OF CORPORATE FRAUD – Senate
Offer Helps Prosecutors and Investigators Actually Prove Their Cases.
RETAIN Senate-passed Protections for Corporate
Whistleblowers: The Senate conferees retain the Senate-passed
provision (sec. 806) to provide corporate whistle blowers an effective
legal remedy if they are retaliated against. The House offer deleted
this provision.
RETAIN Senate-passed Anti-Shredding Felony and
Double Prison Term: The Senate conferees retain the Senate-passed
provision (sec. 802) to create a new crime for destroying, altering or
fabricating records in Federal investigations. The maximum penalty
for a violation is increased from 10 years to 20 years in jail. The
House offer deleted this provision.
RETAIN Senate-passed Felony To Preserve Audit
Documents and Double Prison Term: The Senate conferees retain the
Senate-passed provision (sec. 802) to preserve key financial audit
documents and e-mail for 5 years and to create a new felony for
intentionally destroying such documents. The maximum penalty for a
violation is increased from 5 years to 10 years in jail. The House
offer deleted this provision.
PROTECT CORPORATE FRAUD VICTIMS – Senate Offer
Gives Fraud Victims A Real Chance To Recoup Their Losses --
RETAIN Senate-passed Fair Statute of Limitations
For Fraud Cases: The Senate conferees retain the Senate-passed
provision (sec. 804) to end the current system that rewards fraud
artists who can conceal their crimes, as occurred at Enron for years.
The House offer deleted this provision.
ALLOW Fraud Victims to Recover in Bankruptcy: The
Senate conferees agree with the House conferees to Senate-passed and
House-passed provisions to prevent securities law violators from using
bankruptcy to shield debts based on fraud judgments and settlements.
STRONGER PENALTIES AGAINST CORPORATE WRONGDOERS –
The Senate Offer Sends Corporate Wrongdoers To Jail For a Long Time --
RETAIN Senate-passed Securities Fraud Felony: The
Senate conferees retain the more expansive Senate-passed provision
(sec. 807) to create a new crime for any a “scheme or artifice” to
defraud shareholders, including attempts to defraud as well.
Enhance Penalties on Corporate Crimes: The Senate
conferees retain the more expansive Senate-passed provisions (sec. 807
and sec. 905) and accept the House-passed provisions to direct the
U.S. Sentencing Commission to consider raising fines and punishments
for corporate misconduct.
RETAIN Senate-passed Pension Fraud Crime: The
Senate conferees retain the Senate-passed provision (sec. 904) to
raise the maximum penalty for pension fraud from 1 year (a
misdemeanor) to 10 years in prison. The House offer deleted this
provision.
Focus on White-Collar Crime and Corporate Fraud:
The House offer proposed sweeping new “attempt” offenses for all
federal crimes that could inject numerous irrelevant and hot-button
issues into the conference and change decades of settled conspiracy
law. The Senate conferees focus the House proposal to key federal
financial crimes, the appropriate subject of the conference. The
House’s sweeping “attempt” proposal is withdrawn.
AGREE With House Bill Criminal Penalties If
Higher: The Senate conferees agree to combine Senate passed criminal
penalty provisions and new crimes with House-passed maximum penalties
whenever higher than in Senate bill, ensuring that highest maximum
penalty in either bill will be adopted for each new crime defined in
Senate passed bill. Senate offer also raises maximum penalties for
provisions totally left out by House passed bill to comparable levels.
INCREASE SEC Enforcement Powers: The Senate
conferees agree with the House conferees to Senate-passed and
House-passed provisions to permit the SEC to freeze extraordinary
payments to corporate officials and to authorize the SEC to bar
corporate wrongdoers from serving as officers or directors for life.
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